The euro clawed back some lost ground to hit a two-week high against the dollar during a quiet European session Friday as currency traders took stock of the week's Chinese growth and Spanish fiscal worries and cashed in some of their bets ahead of the weekend.

The common currency traded as high as $1.3294 against the dollar and notched up gains against the yen as traders closed out some of their negative euro bets in the absence of fresh European news.

Traders and strategists also pointed to the decision by China's central bank to set the yuan's reference exchange rate at a record high against the dollar as a catalyst for the euro's rally and the dollar selloff.

"This has made some people question the China easing story. At the margin, this has boosted the euro because people perceive that there's going to be reserve manager or Chinese demand for euros and Australian dollars in the near term," said Peter von Maydell, chief currency strategist at Credit Suisse in London.

However, the rally in the euro stalled just ahead of $1.33 and the euro settled around $1.3250 against the dollar as European equities turned lower and Spanish 10-year bond yields held above 5.50%, after jumping 35 basis points through the week as bond investors once again fretted about the country's fiscal challenges.

The pound also firmed against the dollar in early European trading before losing ground, tracking the euro's moves.

With no important data out this afternoon, expectations are that moves in the currency markets will be largely stop-loss driven. Traders and investors will also be looking ahead to next week's month-end and quarter-end and adjust their positions accordingly.

In emerging markets, the Turkish lira firmed against the dollar after the Turkish central bank opted not to hold its fixed rate of 5.75%, one-week repo auction for a second successive day, continuing its moves to tighten liquidity and shore up the currency.

At 1135 GMT, the euro was trading at $1.3234 against the dollar, compared with $1.3200 late Thursday in New York, according to trading system EBS. The dollar was at Y82.54 against the yen, compared with Y82.55, while the euro was at Y109.27 compared with Y108.92. Meanwhile, the pound was trading at $1.5835 against the dollar, compared with $1.5820 late Thursday in New York.

A summary of key levels for chart-watching technical strategists is below: